FX Commentary – US Dollar Trapped By Declining Yield And Safe-Haven Flow

Market Talk
– The US dollar was pinned below recent highs on Wednesday by a decline in real yields and by trepidation ahead of a Federal Reserve meeting, while other safe-haven currencies were in favour following an unnerving plunge in Chinese equity markets.

– U.S. consumer confidence inched up to a 17-month high in July, with households’ spending plans rising even as concerns about higher inflation lingered, suggesting the economy maintained its strong growth clip early in the third quarter.

– The Chinese yuan fell towards a three-month low against the greenback after recording its worst day since October 2021 on Tuesday as concerns over a recent Chinese crackdown remained firmly in place. The crackdown on tech and other lucrative sectors also saw jitters spill over into the U.S. market on Tuesday

– The Aussie dollar stayed low as a plunge in Chinese equity markets sent investors scurrying for perceived safe haven assets. Also clouding the outlook for the Aussie was a four-week extension of a coronavirus lockdown in Sydney, raising prospects of a third-quarter economic contraction and higher unemployment.

– Gold was up on Wednesday morning in Asia, remaining close to the key psychological $1,800 mark as the dollar softened and U.S. real yields plunged, though gains were limited by investor caution ahead of a Federal Reserve meeting that could provide details on stimulus tapering.

Chart Focus EUR/USD

Key Points

1. Buy EUR/USD recommendation

2. Buy EUR/USD at 1.1805. Stop at 1785 and profit target at 1.1880.

3. Investors’ caution and a decline in real yields are both weighing on the US dollar

4. Price is supported by a rising 20EMA with momentum indicators hinting of a bullish price trend ahead.

Fundamental Comments

1. A decline in real yield is weighing on the US dollar

2. Investors’ caution ahead of a FOMC is likely to weigh on the US dollar

Technical Comments

1. Price is likely to be supported by the rising 20EMA after hitting a bottom last week at 1.1750

2. MACD remains bullish and Stochastic continues to rise into the overbought zone. Both momentum indicators are hinting of a bullish price trend ahead.

Key Levels


Technical Overview

USD/JPY – We had a sell recommendation yesterday at 110.25 but price only reached a high of 110.15 and our recommendation was not filled. Stochastic has reached the oversold zone but looks weak. MACD remains bearish and is hinting of a bearish price trend ahead. 20EMA remains bearish. We think price is likely to continue lower to 109.40 in the next 48 hours.


AUD/USD – We had a sell recommendation Monday at 0.7360 which was filled and we had recommended placing stop at 0.7405 and profit target at 0.7290 yesterday. Price has been caught in a Triangle trading range of 60 pips for the past 3 days. MACD and 20EMA are flat and neutral. Stochastic is in the middle of its range. We could recommend exiting the position at current price level of 0.7362 for a small loss


GBP/USD – Price continues its rally to a high of 1.3894 overnight and negated our bearish view. Price may have reached a high with MACD showing a bearish divergence signal on the 4-hourly chart. This is a warning of a potential price high. Stochastic is also in the overbought zone but 20EMA is pointing higher with a steep slope, hinting of a strong bullish trend. We think the topside may be limited and would prefer to wait for a bearish signal to get into a short position.


XAU/USD – Price has moved above last night’s high $1805.20 and could be heading higher towards the next resistance at $1814. However we think price is likely to range in this week’s range of $1793.55 to $1814. Powell’s speech after FOMC could determine the breakout. MACD and 20EMA are both neutral at the moment. Stochastic is rising and in the middle of its range.


XAG/USD – We had a sell recommendation at $25.30 last Thursday and yesterday we had placed stop at $25.60 and profit target at $24.75. Yesterday, price declined to a low of $24.48 and we are out with a $0.55 profit. MACD is warning with a divergence and hinting of a potential low. Stochastic has a bullish crossover. Both momentum indicators are hinting of a likely price rally.


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